Currently, over 80 percent of business transactions are governed by contractual agreements. In recent years business contracts have become significantly more complex with complicated legal language and a numerous of terms and conditions governing the terms of the contract. Contracts is an agreement binding two or more people. The agreement can be on behalf of persons or companies they represent. There are certain legal requirements that must be adhered to for a contract to be enforceable, but they are seldom an issue in business contracts. The business contracts do not have to be written because they are enforceable in a court of law whether written or in verbal. Therefore, the essence of a business contract is a legally binding agreement that is a mutual agreement between the parties as to the contents of the contract. This agreement between the parties is arrived via a process of offer and acceptance.
An offer is a promise to do something or to refrain from doing some specific thing. A company may offer to obligate itself via a contract. The parties involved in the contract have the opportunity to create a binding promise by making a valid acceptance of the offer. To be effective the offer must have a clear intent by the offeror to become contractually bound (Meiners, Ringleb and Edwards, 2008). The basic terms and conditions of the offer must be clear and certain. In addition, the offer must be properly communicated to both parties. The business intent should be tested by an objective standard. In this the case, the court should decide from the evidence whether a reasonable person familiar with the business should affirm in believing an offer had been made. The offer is commonly used in the advertisement business where they invite people to submit offers to buy. In this the case, when the business accepts the order both parties continue to create a contract.
In defining terms and conditions, every small detail of the offer must be presented for it to be a valid offer. For instance, if a person order a phone by mail order, the contract does not states the phone will be properly packed for shipment, which is presumed. Legally, the terms of an offer must be sufficient so that each party promises are reasonably certain. An offer that has unclear significant terms or is missing critical terms cannot be the basis for a contract. In most cases the courts supply missing terms if they are very minor that the offer does not fail for indefiniteness. This prevents any party from backing out of a contract if he or she claims there was an offer due to some unimportant point, which were not clear.
Similarly, a business offer can be terminated by the parties or the operation of law. The parties involved can terminate an offer by withdrawing or rejecting it via lapse of time. However, in the case of an option contract, the termination is different because it is a binding promise to keep an offer open for a specified period of time. The offerors can terminate most offers by withdrawing an offer before it has been accepted by the offeree. An offer that is terminated by operation of law via intervening illegality occurs when legislation makes an offer illegal after it has been made.
A consideration is the element of a contract that keeps it from being a gift, that is both parties to a contract must get something and give up something (Peter and Christopher, 2013). The conventional rule is that exchange is considered when it creates a legal detriment to the parties involved. Hence, a legal detriment is an act or refraining from an action such as giving up a legal right. The legislation is not involved in evaluating the adequacy of consideration because the bargaining is regarded as the responsibilities of the parties to the contract.
Another element in the business contract is acceptance where offer should be accepted in the manner specified in the contract. Once an offer has been communicated between the parties, there are some choices. For instance, they may agree to terms which is an acceptance. However, the acceptance must be in the same form as the offer for the contract to be enforceable.
The business contract should have a contractual capacity or legal ability to create a contract. The party involved should have the ability to perform legal valid actions, obtain legal rights and incur legal liabilities. For instance, minors , intoxicated individuals and the insane have limited capacity to contract. This so because the party claiming incapacity has the burden of proving it. Most persons have complete capacity to contract. In case an individual as a result of mental disability, does not have the capacity to contract. A contract entered is not enforceable.
Meanwhile, a business contract that does not comply with the law cannot be enforced and is considered as a void contract. This is so if it pertains an illegal subject matter such as a contract to sell drugs. Therefore, disputes as a result of such contract is not accepted by any legislation. The contract is voidable when the party involved in the contract has the right to evade a legal obligation. The states have statutes that set the age at 18 for the people who are supposed to be involved in the business contracts (Meiners, Ringleb and Edwards, 2008). This is because the minor may opt to enter a contract, but the contracts are voidable at the option of the minor. A company that contracts with a minor may find itself with comparatively few rights if the minor disaffirms the contract. However, after the minor reaches the majority age, he or she can ratify contracts made while a minor.
Before entering into any contract, company or individual should evaluate its legality. For a contract to be valid, its content must be lawful. A contract will be illegal and unenforceable if its subject matter violates a state, federal statutes, the common law or is against public policy (Meiners, Ringleb and Edwards, 2008). Therefore, the terms illegal bargains and agreement, rather than illegal contract may be more proper because the contract by definition refers to a legal and enforceable agreement. Similarly, there are illegal contracts which does not abide with ethic principles. The contract that violates the law is illegal agreement that the legislation will not recognize despite the intent of the parties. For instance, deals that prohibit drugs such as cocaine are considered illegal.
A party entering into the should be realistic and have genuine consent. This is so because the freedom of business contract depends on the right of the persons to freely enter into the bargains of their choice. In some cases, a person may enter into a contract without knowing the major information about the transaction. Therefore, when the person is not involved with the content of the contract it is considered void. A unilateral mistake may happen when one party to a contract enters into it with false information or make a mistake in a critical matter (Peter and Christopher, 2013). Lack of consent and being real may lead to fraud case. However, the person who agrees to a contract due to fraud has the right to disaffirm the contract because there was no genuine consent.
Therefore, a contract induced by a fraud may be nullified. This happens when there is a material fact that false information was presented as fact in the making the contract. However, unrelated misstatement such as claiming that Bush was president during world war one cannot be the basis of fraud. Similarly, there should be intentional that the party wanted to mislead the other party and intentionally deceived him or her.
Contracts do not have to be in writing in order to be enforceable. Written contracts are a reasonable idea because they provide clear evidence of the existence of the contract. Hence, the legislation prefers written contracts over conflicting verbal claims. However, such contracts should be supported by a written document to be enforceable. These contracts are subjected to the statute of frauds, which evolved from 1677, which was meant to prevent the cases of frauds and perjuries (Meiners, Ringleb and Edwards, 2008). The purpose of the statute is to curtail parties from claiming that a contract existed when in fact there was no contract. To minimize such fraud case, the statute requires that for certain contracts to be enforceable, they must be in writing. Most legislations have several types of contracts that are covered by the statute of frauds and which must be evidenced in writing to be enforced by a court in the case of a dispute.
The fraud contracts have led to the establishment of cyber law is a concern on the uniform electronic transactions act, which has been adopted by most countries. The purpose of cyber law is to leave the substance of contract law unchanged but to be neutral about the use of technology in creating contracts. The cyber law or E-sign technology eliminates barriers to the use of electronic media in the business contract formation (Berry, 2005). A valid signature involved in this technology includes an electronic sound, symbol attached or logically related to a contract or executed by the party with the intent to sign the record. The major impact of the cyber law is the internal business record keeping which includes employee timesheets, business to business transaction that seems to be more complex than consumer transactions. This also includes business to government dealings such as compliance with regulatory procedures over the internet. However, the cyber law does not dictate the technology that must be applied for a signature to be accepted as genuine because such technology keep on involving.
The business contracts come to end by the completion of the parties' obligation under the contract. The contract may be for one sale or for the long term provision of a service. However, legal impossibility is used to end the obligation to a contract when an event happens that makes the performance impossible. Impossibility happens when one party who was to offer services dies or is incapacitated. Therefore, the law passed makes the performance of the contract illegal. The impossibility removes the obligations of the parties to the contract.
Although parties to business contracts perform their obligation, there still exist several disputes that must be resolved every year. This arises because there is a claim that after a breach of contract, innocent parties should be placed in the economic position they would have enjoyed it they was no contract performed. In case there is a situation where legal remedy of monetary damages is insufficient, the legislation gives the injured party an appropriate equitable remedy. Hence, the most common remedy for breach of business contract is monetary damages. The party who suffers from a breach finds a judgement for lost profits and other expenses particular to the breach (Peter and Christopher, 2013). Hence , a business contract should have liquidated damages which are an amount specified to be paid in the case of breach of contract. However, they will not be allowed when legislation finds that they are in excess that they actually impose a penalty. To avoid penalty, parties involved in the contract should ensure the damages specified are reasonable to actual losses that could be incurred.
In case, the monetary damages are insufficient to compensate for the damages caused by a breach of contract and the parties refuse to resolve the issue properly, the legislation call for equitable remedies. These remedies are available to affected parties only at the discretion of the legislature. The legislation will not grant equitable remedies where adequate damage remedy exists or where enforcement would impose a significant burden to the defendant. In other cases, the court will order the party who created wrong to perform the obligations agreed in the contract. This remedy to the business contract is given for breach of a contract when the payment of the monetary damages is insufficient. In this case, the legislation will be forced to call for an injunction when the payment of damages does not offer a satisfactory substitute for the performance agreed. Hence, an injunction is an order by the court that requires a party to perform or to refrain from performing certain unethical acts (Meiners, Ringleb and Edwards, 2008).
Therefore, business contracts play a significant role in governing commercial interactions between organizations. It is increasingly recognized that business contracts need to be closely integrated into internal and external businesses in e-business applications. This is done to reduce the risk of contract violations and maintain compliance with legislations. Current research as proposed business contract languages allowing the specification of obligations, permissions and prohibitions from business contracts (Berry, 2005). These contract languages facilitate incorporation of business contract specification with cross-enterprise interaction models. The aim is to allow specifications in such contract to be used more directly in the execution and monitoring of business processes. Contract languages offer domain specific abstractions which allow the organization to describe contract conditions in a given technology.
In a recap, business contract plays a significant role in the environment of business. It enables the business to be conducted in a legal manner which prevent unethical behavior in the business environment. The business contract helps the parties to engage in activities which bring mutual understanding. In case of conflict, business contract offers a legal remedy which ensures the affected party is compensated adequately. Similarly, business contracts apply via strategies such technology to prevent the fraud cases which arises in some contracts. This involves cyber law which eliminates barriers to the use of electronic media in business contract formation. Therefore, business contract is a significant issue in the legal environment of business.
Berry, A. (2005). “Extending Choreography With Business Contract Constraints.” International Journal of Cooperative Information Systems, 14(3), 131-179.
Meiners, R. E., Ringleb, A. H., & Edwards, F. L. (2008). The legal environment of business. Mason, OH: South-Western Cengage Learning.
Peter , R., & Christopher , D. (2013). “Contract and Choice.” Brigham Young University Law Review, 13(1), 1-63.